iPass Blog

The Basic Necessities: Air, Water and Wi-Fi

Often the true cost of the commodity may be obscured by add-on services

Executive, Global Wi-Fi, IndustryWednesday, July 6, 2016

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By Gary Griffiths, CEO

There are only a few of things I remember from my undergrad economics course: guns and butter, supply and demand, and that “air” is the only resource that is actually free. And as far as I know, four decades later, no one has yet tried charging for the air we breathe. That said, there’s a big industry involved in making air “better.” Purified, filtered, humidified, dehumidified, scented and so on. There’s a lot of money to be made on “free” air.

Water is similar. It makes up about 70% of our body weight and also, coincidentally, covers about 70% of the planet. Like air, water is essential to life on this planet as we know it. And while water isn’t free, next to air, it’s a pretty close second. We expect free water in public places and, ranked against other utilities provided in the home, water is just about free – about 4 tenths-of-a-cent per gallon in New York City. That’s pretty cheap, but…

The fastest growing beverage worldwide is bottled water.

Annual consumption of bottled water in the U.S. has more than doubled since 1999 to about 35 gallons per person. And a 16-ounce bottle of water will typically cost you about a buck – a whopping $8 per gallon. That’s even after a Food and Water Report, which claimed that nearly half of all bottled water is simply repackaged tap water.

Actually, that report reminds me of another thing from Econ 101, which apparently the beverage company executives didn’t sleep through either: buy low, sell high. Fractions of a penny in cost vs. eight-bucks in retail?

So why pay $8 for a commodity that is essentially free? Some might argue for taste or purity (or clever marketing), but I think it’s primarily a lifestyle and convenience choice, along with some consideration for the safety of a sealed bottle.

Let’s talk about another commodity: Wi-Fi

iPass is the world’s largest Wi-Fi network. We provide our customers access to more than 53 million Wi-Fi hotspots in more than 120 countries. Like Uber, the world’s largest taxi company without owning a single car, we don’t own a single one of those hotspots. And unlike in the case of “free” air, we actually charge our customers for access to our Wi-Fi, which we’ve aggregated by partnering with more than 160 suppliers of Wi-Fi in the countries in which our service is available. These partners include big global Mobile Network Operators (MNOs) like AT&T, BT, DT, and Orange, cable operations like Comcast and Time Warner Cable, regional carriers in most parts of the world, including China Mobile, Swisscom, SK Telecom, Tata and many others, as well as “specialty” Wi-Fi suppliers: Boingo, Gogo, SingleDigits, Guest-Tek, Panasonic and the list goes on.

Our partners have invested a lot of capital in infrastructure to provide this Wi-Fi. They continue to pay for on-going maintenance and support, as well as Internet connectivity. We compensate our suppliers for access to their network at wholesale rates and, since we can drive additional traffic through their network, we allow them to generate additional return on their investment, defraying their on-going operating expenses.

And the cost of their Wi-Fi investment is significant. To cite just a few examples, Brocade Communications recently acquired Wi-Fi router manufacturer Ruckus Wireless for about $1.5 billion, Cisco’s wireless-related revenue is reported to be roughly $2.5 billion per year, and in-flight Wi-Fi provider Gogo generates over half a billion dollars in annual revenue. That’s a lot of dollars spent on something that many view as free. Especially when considering that the global Wi-Fi market is expected to top $30 billion by 2020. That buys a lot of gallons of water.

$30 billion? But isn’t Wi-Fi free? How can anybody be selling it?

Wow! Free Wi-Fi! What a concept! And I wonder, “Where do these folks live – that get free Wi-Fi?” Not in my neighborhood. I’m paying about $80 per month for Wi-Fi at home. Makes me think, “Maybe I should rent a room in these houses with free Wi-Fi and save some money.” And I spend a lot of time on airplanes – enough that if I was not connected when flying, I’d fall way behind in my job. But I don’t find a lot of free Wi-Fi in the air. In fact, I’ve been on some long haul flights where being connected from point A to point B costs me as much as $70. And a subscription to unlimited Gogo in-flight Wi-Fi will cost you about $60 per month – which of course only covers the airlines serviced by Gogo. You can typically buy access to Wi-Fi on demand from your mobile carrier as well – particularly when traveling and roaming. According to the 2015 Business Traveler Connectivity Index, on demand Wi-Fi access fees can range from $73 to $130 per day, considering in-flight, airports and hotels.

So sure, “free” Wi-Fi is out there – in cafes, fast food restaurants, some budget hotel chains, and so on. But step back into that economics class again: there ain’t no free lunch. Since there is no question that providing Wi-Fi is costing somebody some fraction of that $30 billion market, you can rest assured that the accountants in these businesses have figured out how to profit from their investment in this free Wi-Fi. So while you may not be paying that coffee shop directly for your connectivity, you know that they are justifying that expense through additional income, which may come from advertising or collecting additional personal information to make it easier to contact you. It may come from special offers or other incentives aimed at having you spend more. Or it may be a bait and switch: use our free Wi-Fi for a limited time, but if you want “the good stuff,” I need your credit card.

But my goal here is not to convince you that Wi-Fi is expensive. Quite the opposite. Our goal is to drive the cost of Wi-Fi to as close to free as possible – to make it ubiquitous and affordable. And with our afore-mentioned partnerships, we have the capacity to drive costs down by negotiating committed contracts to these suppliers in exchange for increasingly lower $/MB rates. Because we’re not only like Uber, we’re like bottled water as well.

Our value in the food chain is adding services on-top of Wi-Fi. We’re a service company. We make it easy to connect, by offering the same experience in Boston or the Bahamas or Bengaluru. Commerce runs today on the Internet, and we can’t afford not be connected. We can’t afford the time to go find a Wi-Fi password, to sit through a promotional video, or to be in the middle of a one-hour online meeting only to realize your free Wi-Fi was only good for 30 minutes. And you can’t afford the security risks, exposing your own personal data or your company’s information, to those unscrupulous few that find in unprotected public W-Fi a source of illicitly collected information that can be resold. Point is, we’re not Wi-Fi, we are the stuff that makes Wi-Fi better and safer.